Carbon Offsetting – An Easy Option for Business, or an Instrument for Change?

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This week I attended a three day ‘Corporate Climate Response’ conference in London, UK. Topics included why organisations should consider using carbon offsetting as apart of their business strategy – out of principled concern for the environment, to achieve a competitive edge by being seen as a caring organisation, or to gain experience in a voluntary market prior to mandatory offsetting being introduced.

The Coffee House believes that any organisation that is committed to addressing climate change needs as a matter of priority, adopt a strategy that focuses firstly on its own direct emissions, and reducing its carbon footprint using all cost effective measures available. It should then target indirect emissions by engaging with its supply chain, supporting low-carbon suppliers and encouraging them to pursue further and continuing reductions wherever economically possible.  Finally, it should consider the applicability of ‘carbon offsetting’, which allows organisations to indirectly achieve additional reductions of their carbon footprint by purchasing carbon credits associated with emissions reduction projects, typically in developing countries.  

At the conference, Rob Challis, Global Head of Corporate Responsibility for the Man Group – an international financial services organisation, outlined how his organisation had used an emissions reduction strategy similar to the one I outlined above. Its implementation has meant no net increase in their carbon footprint, despite significant growth in the organisation since the scheme was introduced. Part of their reductions have come from a carbon offset  project in India – the Malavalli Power Plant, which utilises low density crop residues (which would otherwise burnt on the fields) for the generation of eco-friendly green power. Electricity for 47 villages would otherwise be supplied from a power generating mix primarily dependant on coal. Over a 7 year period this scheme is expected to have saved 144,840 tonnes of CO2 emissions, created 450 jobs in collecting and supplying the crop residues, and a further 200 jobs in the production of organic fertiliser that includes the power plant waste that can then be applied back onto the land.  

The Man Group’s participation in the Malavalli Power Plant scheme was facilitated by Pure, a charity that ensures that offsetting schemes sourced for its clients (corporations or individuals) comply with the clean development mechanism (CDM) within the Kyoto Protocol. This is one of a number of initiatives aimed at providing standards against which schemes can be evaluated to ensure that claims of GHG reductions, sustainable practice and socioeconomic benefit are real and verifiable.  Information about the project and its performance in relation to carbon emissions reductions is readily available in the public domain; however, on a less positive note, I could find no data on the socioeconomic impacts of the scheme, a key plank in the CDM approach.

With both mandatory and voluntary offsetting account for redutions equal to only 0.5% of our current carbon emissions (but expected to reach 5% by 2010), it is unfortunate that ‘Gold Standard’ offsetting schemes like this one make up less that 1% of the emissions reductions schemes undertaken to-date.

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27 Responses to Carbon Offsetting – An Easy Option for Business, or an Instrument for Change?

  1. matt says:

    So The Gold Standard offsetting projects are only 1% of 0.5%?! Therefore not even a driving ‘standard’ in carbon reduction.

    Regarding the Malavalli Power Plant scheme are not the local jobs a socioeconomic ‘impact’?

  2. the Grit says:

    Hi y’all,

    There’s one problem with the Indian power plant scheme. It would be better to teach the local farmers better techniques, which would include chopping the crop residue and tilling it into the soil. That greatly reduces the amount of fertilizer needed, and, since that is very energy intensive to make, would probably save almost as much CE as the non-use of coal does. It would also save on transportation costs of fertilizer and the residue, and, considering the absolute best thing one can do for the soil is work in more organic matter, improve their crop yield. That might have benefits as well, but we’d have to know more about where the food is going to find out. Oh, and don’t forget the energy savings on the electronic funds transfer 🙂

    the Grit

  3. Stephan says:

    Hi Matt,

    Note my rewording of the last para. It gives a slightly brighter prognosis:) You are correct however, we need more Gold Standard schemes to restore credibility in offsetting.

    Yes, the local jobs are a socioeconomic impact, but the point I was making was that the monitoring and verification reports only cover the carbon emissions outcomes. The idea of the Gold Standard is that sociaoeconomic benefits should acrue to the local community whilst we get our carbon offsets, this may have occured, but we don’t know as it isn’t reported. If the public are to be convinced of the value of these Standards this infomation should be made available.

  4. Stephan says:

    Hi Grit,
    I did put the ‘fertilizer question’ to the representative of Pure (the charity facilitating the offset); unfortunately he was unable to give a suitable response. Pure rely on the fact that it is a Gold Standard project as a measure of its overall carbon emissions and socioeconomic efficacy. However, I did look at the CDM submission documents; these took into account carbon ‘leakage’ – any carbon generated during the collection and transport of the crop waste etc., and this was deducted from the projected reductions. The submission also talked of encouraging the use of organic fertilisers fortified with the 6% of residue resulting from the burning of crop waste for power generation. As with my answer to Matt’s question, I can find no information on verification that this has occurred, for all we know there could have been an unexpected wholesale uptake of synthetic fertilisers in resopnse to diminishing yields, we just don’t know. Is seems the corporate side of the equation are only concerned with the carbon they can say they have saved despite the broader aspirations of the Gold Standard. (I should point out that my search for verification data was relatively superficial, there maybe better data out there)

  5. matt says:

    > It would be better to teach the local farmers better techniques, which would include chopping the crop residue and tilling it into the soil.

    I have to say this point is obviously valid and seems to undermine the project’s overall aims. Not such a ‘Gold’ standard then.

    For London business to influence Indian agriculture in this way could be interpreted to be morally corrupt. And not so ‘Pure’.

  6. earthpal says:

    Have you seen this report in today’s Guardian?

    http://environment.guardian.co.uk/climatechange/story/0,,2093835,00.html

    The Clean Development Mechanism (CDM), which is supposed to offset greenhouse gases emitted in the developed world by selling carbon credits from elsewhere, has been contaminated by gross incompetence, rule-breaking and possible fraud by companies in the developing world, according to UN paperwork, an unpublished expert report and alarming feedback from projects on the ground.

  7. the Grit says:

    Hi Stephan & Matt,

    These things are indeed complex, and Indian agriculture is not very evolved. Just like any other product, carbon indulgences, it would seem, need to be purchased under the rule of, “let the buyer beware.” 🙂

    the Grit

  8. Stephan says:

    Hi earthpal,
    This is exactly what the Gold Standard is supposed to protect offset ‘consumers’ against. It is a shame that such projects account for less than 1 per cent of those carried out so far!

  9. matt says:

    So, The Coffee House continues to expose the offset scam!

    Back to the industry for their reply ….

    Editor’s note: Pure, who as Stephan points out run the above scheme in India, have visited The Coffee House in the recent past to defend their offset schemes. But now we are further enlightened thanks to our intrepid business reporter Mr Stephan Smith.

    🙂

  10. Stephan says:

    Matt,
    A slight correction to your statement, Pure don’t run the Malavalli Power Plant scheme, they facilitate emissions offsetting for their clients by purchasing some of the offset credits made available through the scheme on their behalf. These offsets –having been used up, are then ‘retired’ so they cannot be unscrupulously sold on (double counting). This goes in Pures favour:)

  11. matt says:

    Once a market is conceived or made up (as offsetting surely is) it has to be fed to justify its existence and therefore fussing about the details of a Gold Standard becomes merely a chat about market advantage, not the moral dilemmas of an offsetting system.

    The carbon offsetting market is riding on a puff of wind. It’ll need more than that to survive. A piece of EU legislation maybe. 🙂

  12. keithsc says:

    Matt
    I don’t understand your basic opposition to offsetting schemes. Sure they have to be properly regulated to ensure there isn’t double counting or undercounting but assuming they really do reduce total greenhouse gases why are you so opposed? There is a cost to the person or organisation producing the carbon so there is a pressure to directly reduce their carbon output. And surely it is a lot better than doing nothing?

  13. matt says:

    > There is a cost to the person or organisation producing the carbon so there is a pressure to directly reduce their carbon output. And surely it is a lot better than doing nothing?

    I’m not sure what you’re trying to say here Keith. Your comment is about as confusing as trying to track a carbon offsetting scheme. 😉

    Nothing is better than carbon emission cuts, at source, in the wealthy countries that are producing them. Period. Surely you agree with that!

    Offsetting schemes are a sham designed to relieve the guilty consciences of western consumers and businesses so they can carry on consuming as usual.

  14. inel says:

    I agree with matt. There was another story in Saturday’s Guardian—running parallel with the one earthpal provides the link for—and it made me feel sick at the thought that these things actually happen and people are profiting from creating more carbon instead of less while participating in carbon trading schemes:

    http://environment.guardian.co.uk/climatechange/story/0,,2093815,00.html

    This does not make pleasant reading, but it is better to know and press for strict controls and tightening up of regulations than let this continue. Better still, emit no carbon, if not, emit less carbon. As a luxury, only after getting our own emissions down as low as possible, should we be allowed to pay others to reduce carbon on our behalf. I continue to be wary and will not support a system that is being abused so easily while damaging the world and making rich people feel good about their green quotient.

  15. matt says:

    Hi inel

    Good article from The Guardian. The problem is always with verification;

    ‘Until July 2006, the CDM executive board did not reject a single project. It was short of staff, short of experts and short of funds. So it relied on the specialist companies to get it right. Since those specialist companies are hired by the projects who stand to earn big profits if they are accepted, that is an inherently weak structure. As one carbon analyst put it: “The verifiers are being paid by the people they are verifying. If it turns out the verified is a bad guy, he is paying the policeman to sign him off as a good guy.”

    More recently, the CDM board has found its feet and is using a new team of experts to check the work of the specialist companies. Now, they are spotting bogus projects which previously were slipping through. Since July last year, they have rejected 14 of them. Some of them were blatantly inappropriate, and yet specialist companies had validated them.’

    Point Carbon thinks these are teething problems. But then these guy’s careers are bound up in carbon ‘products’ so, they would say that wouldn’t they.

    At the very edge of acceptance for me are the water tight ‘additionality’ projects. But otherwise it’s a market farce.

  16. earthpal says:

    Inel, very well said. I fully agree. I’ve argued this myself many times and I’ve been accused of being market and economically-naive. So frustrating.

  17. matt says:

    Another news item slamming carbon market instruments, this time carbon trading;

    ‘Carbon trade scheme ‘is failing’
    By Julian O’ Halloran
    BBC File On 4

    ‘The government’s own figures show an increase in greenhouse gases. The EU’s carbon trading scheme has increased electricity bills, given a windfall to power companies and failed to cut greenhouse gases, it is claimed.’
    Read more of this BBC report here.

  18. Stephan says:

    It is the nature of business organisations to use any resource, market, legislative or technological opportunity that is presented to it – this is called ‘efficiency’. It is the job of politicians to set the framework within these organisations must opperate, put the mechanisms in place to ensure they comply, and to modify the instruments if they are not working as intended. It is evident that the EU scheme has been ill-conceived and then mismanaged – no wonder it is failing to deliver. Gold Standard projects are an attempt to redress these problems; however, they must now work extra hard to restore the tainted credibility of offsetting and clearly they are not yet doing so.

    As Mr Blair might say: ‘Verification, verification, verification!’

  19. Pete Smith says:

    Am I the only one who’s getting a bit dizzy trying to follow this thread? We’re hopping about between international emissions trading, which is restricted to developed countries, and the Clean Development Mechanism, which operates between developed and developing countries. Both schemes have one thing in common at least, they’re a licence to print money. Their complexity makes them impossible for normal mortals to understand, which means that a new generation of financial experts has evolved to devise whole new categories of financial instruments and derivatives specifically for emissions ‘trading’.
    The EU is seen to be at the vanguard because of its early adoption of Kyoto. Carbon trading volumes exploded from 10 million tons in 2004 to over 600 million tons by the end of 2006. Over the period 2008 to 2012, the market for carbon credits is predicted to be worth some $45 billion annually, about double what it is now. It’s obviously in the interests of the companies brokering these transactions to keep the processes as obscure as possible so they can justify their fees.
    To serve the demand, exchanges have sprung up across the Continent that give polluters the ability to trade and hedge carbon emissions credit. Now, big-time commodities brokers are getting into the act. In September 2006 for instance, Goldman Sachs paid $23 million for a 10.1% stake in London-based Climate Exchange , Europe’s largest carbon marketplace.

  20. matt says:

    > In September 2006 for instance, Goldman Sachs paid $23 million for a 10.1% stake in London-based Climate Exchange , Europe’s largest carbon marketplace.

    Thanks for this Pete. Says it all really. Carbon markets look like they’re here to stay with serious investment like this.

    So, as Stephan says it’s time to concentrate on verification. Another community stakeholder, the media, has a central role to play here in keeping a watchful eye.

  21. matt says:

    For interest, ‘Pure’, the offsetting organisation mentioned in Stephan’s report, have an ‘Accountability’ section on their website.

    Their section, ‘PURE is proud of the following’ includes point ‘2b’;

    ‘For Certified Emission Reductions, the UN Clean Development Mechanism verifies that the emission reductions have actually been achieved and that the project is truly additional, i.e. that funding from the sale of carbon credits is necessary to ensure the project’s financial viability.’

    As we now know, while this looks good at face value, underneath lurks a creaking CDM verification system, with applicants and so-called verification companies taking advantage.

    The head of the UN’s CDM dept says he now has more resources to do proper and direct project verification and they have since rejected 14 projects as a result.

    For Pure’s sake totally independent and well resourced verification systems must be robust and continue to take police this new market.

    Also from Pure’s site the project Stephan has reported on is mentioned here;

    Intro: ‘PURE has recently bought and will cancel carbon credits from the world’s first Gold Standard project to receive Certified Emission Reductions from the UN Clean Development Mechanism.’

    Details: Malavalli Power Plant (India)

  22. Pete Smith says:

    ” … time to concentrate on verification”
    In principle, I agree with you. But the massive complexity of the bureaucracies being created makes it impossible for stakeholders, journalists, even governments, to really understand what’s going on. As you pointed out above, the overseers of CDM are so strapped for cash and expertise they are forced to sub-contract to the specialists working for the project owners, leading to conflicts of interest.

  23. Pete Smith says:

    On the subject of CDM oversight resource shortages, I notice that the CDM Registration and Issuance Team put out a ‘Call for Experts’ which ran from 26 March to 20 April 2007. This public call was open to experts from all regions. However, applications from nationals of African countries or countries with Economies in Transition were particularly encouraged. Which is only right and proper given that Africa doesn’t seem to be getting its fair share of CDM projects.
    Applicants needed “an advanced university degree in economics, energy, social, environmental studies,natural sciences, engineering, development studies, or any related discipline”, along with experience of project management and monitoring methodologies.
    http://cdm.unfccc.int/EB/029/eb29_repan14.pdf
    Seems the going rate for these skills is $400 a day. Is that good? Seems a lot to me, but who knows?

  24. matt says:

    PURE’s MD, Robert, has been invited (via email) to reply.

    We look forward to a robust response no doubt.

    Ed’s Note: Only 4 people work at PURE and they are based in the building of the European Carbon Exchange at Bishopsgate in ‘the city’ (and use their email system).

  25. matt says:

    > Seems the going rate for these skills is $400 a day. Is that good? Seems a lot to me, but who knows?

    Having looked at your CDM linked document and understanding the skills required and the nature and importance of the work, I’d say $400 or £200 is reasonable for a consultant.

    I notice that they are also sourcing from the ‘Roster of Experts’, a pool of experts, often from science and business disciplines, from which all UN depts can source from. So, once again I’d say the rates are probably about right, as long as they have tight guidelines & deadlines.

  26. Robert Rabinowitz says:

    Following the questions raised on this blog, I followed up with the Gold Standard. Here is a summary of their response:

    “The project’s design document and the Gold Standard documentation of the project state that the ash from the power plant (which contains most of the nutrients) is mixed with cow manure and other organic residues and distributed back to the farmers as organic fertilizer. By doing so, the project activity is able to use the organic content of the residues and implement an organic fertilizer scheme, reducing the need for chemical fertilizer and improving the soil condition.

    “In addition to the organic fertilizer scheme, the project activity generates jobs and additional income to the farmers through the biomass residue supply chain.

    “It is not at all clear that chopping the crop residue and tilling it into the soil would be better than the implemented scheme. It would be more work intensive for the farmers (more expenses) and would not generate any additional income. The fertilizer being distributed to farmers within the project activity is easy to handle and most probably as good as the chopping/tilling approach.”

    Robert adds – In addition to evaluating the project purely on the basis of the relative value of leaving the crop residues on the ground versus the use of the residues in power plants, it is crucial to take into account the generation of renewable energy and the direct creation of local jobs. It’s not simply a matter of which is best for the soil, but the most efficienct use of local resources to generate local environmental, economic and social benefits.

  27. Stephan says:

    Hi Robert,

    Thanks for spending the time to respond to my article on The Coffee House blog. As you point out, the project design document for the Malavalli scheme does refer to the fertilizer issue, stating how it is expected to integrate with the primary goal of reduction of GHG emissions in a positive way for the local community. This was discussed on the blog when the question about soil degradation was raised by a regular visitor to our blog who happens to be a farmer. As I indicated then, the value of the offset from the standpoint of GHG emissions reductions wasn’t in question and there is documentation readily available to back that up (the bases for the CER’s). The issue was more that, with this being a “Gold Standard” scheme, someone knowledgeable about farming practices and soil fertility could query one of its stated socioeconomic and sustainability benefits, and we are not able to point them to data that definitively answers the question. I mentioned to you when we briefly met that this issue has been raised previously on this blog in relation to other such schemes, and the reply you have received from the Gold Standard people does little to reassure me that they have this aspect of their projects under control, using terms such as “most likely”, indicates that most probably follow-up has not been done. Surely it would be good to do this work and to correct any negative outcomes; this would be to the benefit of the local people, the design of future schemes, and the credibility of the Gold Standard. It would also that people like you and I, who believe that the offsetting and in particular the Gold Standard could be an important instrument in achieving GHG reductions, to spend less time having to defend them.

    Stephan

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